Editorial: Cal Am water agreement is a big step forward

They're expensive and temperamental. They need gobs of power to run and they're not good for sea life. And — did we mention — they're really expensive.

But the Monterey Peninsula, despite being a grand place to live, is not part of a perfect world, and one of the imperfections it contributes to that reality is its inadequate water supply. Too little water for too many people. That, and a combination of political, economic and environmental forces, makes desalination here an imperfect necessity.

Fortunately, the mayors of the Peninsula, united for this purpose as the Monterey Peninsula Regional Water Authority, are making the best of a bad situation by lobbying, negotiating and cajoling California American Water into accepting a long list of conditions meant to make the company's proposed desalination plant as consumer-friendly as possible.

The agreement reached Wednesday by the mayors and Cal Am was endorsed by interests ranging from LandWatch and the Sierra Club to the Monterey County Farm Bureau and the Coalition of Peninsula Businesses. The document does not solve all the environmental concerns, and it does not entirely ease the pocketbook pain the expensive plant will inflict on Peninsula residents and businesses. But it puts some caps on the costs and forces Cal Am into a financing arrangement that significantly reduces the amount of profit it can extract from the plant—and its Peninsula ratepayers—for decades to come.

Some details are open to criticism, and some are likely to be mischaracterized. It calls for the public to put up a significant share of the construction costs without getting any ownership share. But in exchange for the mayors' support of the project overall, Cal Am is reluctantly accepting a reasonable amount of public oversight. And the use of public money upfront actually helps keep the public's cost down in the long run.

In a nutshell, regulated utilities are allowed to claim an annual return, or profit, of just under 10 percent on money put up by their shareholders. Using public money instead of shareholder money for part of this project reduces the shareholder investment and the amount the company can extract from the project. Compare it to buying a house. It's as though the buyer, the public, is making an especially large down payment, thereby reducing the size of a long-term mortgage with a particularly high interest rate.

The agreement also calls for Cal Am to obtain low-interest state money as part of the package.

Those measures reduce Cal Am's equity in the $400 million project by about half, saving ratepayers tens of millions of dollars over the decades.

Some will be disappointed that the plan doesn't directly tie the desalination project to less expensive and less intrusive efforts such as groundwater replenishment, aquifer storage and recovery, and increased conservation. The state is requiring the Peninsula to increase its water supply, or dramatically reduce its use, in order to save the Carmel River from further degradation. Nothing in the agreement discourages pursuit of those other measures, each of which could and should contribute greatly to the Peninsula's sustainability.

We don't like it that the Public Utilities Commission required the various parties to the agreement to negotiate in secret. The theory is that secrecy speeds things along. The PUC apparently didn't learn anything from the previous Peninsula desalination proposal that amounted to a spectacular failure largely because of a fatally flawed structure that was negotiated in private. Fortunately for all, a wider range of interests was represented in the just-concluded negotiations and there is no hint yet that the secrecy led to the type of self-dealing that the previous process spawned.

Still, one potential party to the new agreement, Ron Weitzman of WaterPlus, has already filed a formal objection, arguing that the interests of Cal Am customers were ignored. Even though one of the parties to the agreement is the PUC's consumer-protection division, he complains that the 13,089-word agreement never uses the word "ratepayers."

"This glaring omission demonstrates as clearly as anything could that the parties filing the agreement did not have ratepayers in mind when they negotiated it," Weitzman wrote.

We disagree.

While the mayors clearly are interested in preventing a state-ordered cutback in water usage, which would be disastrous for area businesses, it is clear from our many discussions with the mayors and their representatives that they are equally concerned about keeping the costs as reasonable as possible.

Particular credit should go to Carmel Mayor Jason Burnett, who played a lead role in the discussions, and to Monterey Mayor Chuck Della Sala and former Carmel Mayor Sue McCloud for creating the mayors' group in order to fill a leadership vacuum on the water issue.

The agreement doesn't solve all the obstacles that Cal Am faces. Pumping water directly from the ocean creates environmental issues. Using brackish groundwater creates headaches for others with groundwater rights. The agreement requires Cal Am to work with Salinas Valley farmers to study the potential impact rather than to just argue about it.

The thought of briny wastewater being pumped into the bay keeps ocean scientists up at night. Cal Am likely needs to come up with new ways to mitigate damage to sea creatures.

The amount of work still to be done makes it clear that Cal Am will never make the state's 2017 deadline for creation of a new supply, but the agreement released this week should demonstrate to the State Water Resources Control Board that the Peninsula is finally serious about developing real alternatives to draining the life out of the river.

Progress on the Peninsula's water problem has been slow in coming. This agreement is an important step forward.